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Apple, publishers reach deal to avoid EU e-book charges

updated 11:00 am EDT, Fri August 31, 2012

Allows Amazon to discount e-books for two years

Apple and four of the five major publishing companies have offered to allow retailers such as Amazon to discount e-books for up to two years, part of a deal that could end an EU antitrust investigation that mirrors the case being brought against Apple and two publishing houses in the US. Only one publisher, Pearson's Penguin group, was not part of the sweeping EU arrangement, which could see Amazon regaining its monopoly position in the e-book market.

Before Apple entered the e-book arena, it persuaded publishers to return to the traditional "agency model" for pricing. In that model, the publishers set the price of the e-books, and sellers (like Apple) take a 30 percent distributor cut. Publishers were free to set any price they wanted, but the agreements demanded that all retailers adhere to the same model, meaning prices would be nearly identical from all sellers (barring publisher-approved sales).

Amazon had, by that time, established a near-total monopoly on e-books using the "wholesale" model, a different approach in which publishers set a discounted price, but retailers are free to sell the books for whatever price they wish -- even at a loss. Apple and the other publishers complained that this approach devalued e-books and would lead to tangible market harm as smaller players would be unable to compete, since Amazon could afford to take steep losses on the products in order to build marketshare.

Amazon was found to be abusing its monopoly position prior to Apple's entry in the market, punishing uncooperative publishers and putting pressure on retail booksellers. Since Apple and others such as Barnes & Noble have established competitive bookstores, Amazon is down to just 60 percent of the market and eventually agreed to the agency model itself.

Regulators on both sides of the Atlantic, however, have said that the Apple's brokering of the "agency model" amounts to a conspiracy to fix e-book prices higher than what Amazon would sell them for, and a deliberate move to dismantle Amazon's monopoly. The governments' positions have been that Apple and others must allow the market to set prices, even if it results in "predatory pricing" such as what Amazon and other mega-retailers like Wal-Mart have used to drive out competition. In the new proposal, Apple and four publishers -- HarperCollins, Hachette, Macmillan and Simon & Schuster -- have agreed to allow retailers like Amazon to discount (even at a loss) for two years.

The commission heading the investigation says it is "informally" testing the commitments and sounding out the industry on whether the concessions are sufficient. It will also conduct a formal market test before deciding whether to drop the investigation. The deal is similar to a settlement most of the publishers have agreed to with the US Department of Justice to settle charges of price-fixing in the US, but offers a more limited period of "wholesale" pricing than the US deal. Apple and two of the publishers, Penguin and Macmillan, are fighting the charges in what will likely be a landmark US court case expected to begin in earnest next year.

by MacNN Staff



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